IRS DEBT and I am CLOSING on new home later this month..HELP!

[Anonymous]

I'm such a nervous wreck right now and just want to get others opinions or experiences with my dilemna..

So, my wife and I will be closing on our new home on 4/16/19 and I received a notice in the mail from the IRS two weeks ago stating that we owe about $10K in back taxes. We filed a 1040x last year to correct taxes that my wife had done herself on Turbo Tax and after filing our taxes this year, we received a notice stating that our refund had been applied to an outstanding balance owed to the IRS. 

Anywho, we have already sent prior year tax returns to our loan officer and they have scheduled the closing date for us but my main concern is what if this comes up on the day of closing and we get denied for our mortgage loan? Is there any way that the IRS can inform the mortgage lender that we owe back taxes or is there any way for them to see how much we owe the IRS? I wasn't aware that we owed this until just recently so I didn't report this as a debt. We plan on setting up a payment plan with the IRS asap but I just don't want us to get denied because of this. 

Any advice would be great! Thank you!

[Anonymous]

Did your lender require you to fill out form 4506T which will allow them to retrieve your tax transcripts from the IRS if they need them?  If you can't pay, go to the IRS site and fill out form F9465 which is basically a promise to pay your back taxes and they will not take any action against you.  You can also do this online. 

[Anonymous]

Thank you for your response!

Yes, we did sign a 4506T form. Wouldn't the amount owed appear on the tax return?

[Anonymous]

It should only be whatever is on your W2 and any other income such as gambling winnings, etc.  You can see your tax transcipts online via the IRS website when you log in to your account.   

If they requested your actual tax returns, then yes, they will see what you owe.

[CreditInspired]

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@Anonymous wrote:

Did your lender require you to fill out form 4506T which will allow them to retrieve your tax transcripts from the IRS if they need them?  If you can't pay, go to the IRS site and fill out form F9465 which is basically a promise to pay your back taxes and they will not take any action against you.  You can also do this online. 

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There may be a chance that since your transcripts have already been ordered and reviewed by LO, it may be okay. However, IRS can be a beast and I understand your nervousness. In the letter, did they give you a timeline to respond or do anything? If after closing date, there’s a slim chance you may be ok. If before, that could be a problem because you certainly don’t want your wages garnished.

Setting up an installment agreement will delay closing 4 months because lenders only accept if 3 IRS monthly payments have been made on the agreement, and it takes another month for IRS to set it up. 

It may be a good idea to let your LO know what’s going on. 

So so sorry this is happening. 

[Anonymous]

The IRS doesn't move very fast. If you just received the letter 2 weeks ago then your wages will not be garnished before closing and they will not notify the mortgage company before closing. They have to give you due process and will definitely send out another letter (probably multiple) before they take any adverse actions against your wages or bank account. I know this from experience. Assuming you simply ignored them as my BF did,  it would still take several months or longer. Obviously, I wouldn't recommend that.

I think you should contact the IRS and set up a payment plan ASAP. But even the payment plan will take a month or 2 to become effective, so it should not count against your mortgage since it has already been approved. As someone else mentioned, the only way the mortgage company would find out before 4/16 would be if your mortgage company requested your Record of Account or Account Transcript on the 4506-T (you should have a copy of it to reference). The Tax Transcript may or may not show the debt depending on the tax year that you owe money for and the tax years that the lender requested on the 4506T. What year is 10k debt for? Tax transcripts will only show the tax filings for any given year and will not show debts from past years. However, a Record of Account will show the total tax debt owed to the IRS at the time they requested the info. It's definitely a good idea to speak with the loan officer, but if they have already reviewed that info and the debt wasn't on there, it's not going to be updated unless they request it again.

[Anonymous]

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@Anonymous wrote:

As someone else mentioned, the only way the mortgage company would find out before 4/16 would be if your mortgage company requested your Record of Account or Account Transcript on the 4506-T (you should have a copy of it to reference). The Tax Transcript may or may not show the debt depending on the tax year that you owe money for and the tax years that the lender requested on the 4506T. What year is 10k debt for? Tax transcripts will only show the tax filings for any given year and will not show debts from past years. However, a Record of Account will show the total tax debt owed to the IRS at the time they requested the info. It's definitely a good idea to speak with the loan officer, but if they have already reviewed that info and the debt wasn't on there, it's not going to be updated unless they request it again.

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I just went back to look at my BF's Record of Account and Account Transcript for 2017 and neither show past debts even though I know he owes for prior years. They only show info and transactions pertaining to the tax year in question (unless u had a refund from that year that was intercepted and applied to a past tax year debt). So if the 10k debt is for a prior year (e.g.., 2015) and the mortgage company only requested info for 2016, 2017 on the 4506-T, then they probably won't know about the debt before you close. You can verify this on the IRS website and know exactly what the mortgage company will see so that there are no surprises. I still suggest talking to the LO, but I wanted to correct that part of my response.